Modern retirement: What 'snowbirds' should know before buying a second home

After another frigid winter, are you considering becoming a snowbird and buying a second home in a year-round sunny state?

“For many, it sounds like a pipe dream. Even for the wealthiest echelon, there are key financial considerations that apply for adapting a snowbird lifestyle,” Merrill Lynch advisor Arthur Vale, CFP CPWA, told FOX Business.

According to Vale, the top three things to consider when making this decision are 1) the additional cost of housing  -- whether renting or buying a property 2) cost of commuting between your summer and winter homes and 3) the added expenses incurred in maintaining your lifestyle.

If you’re weighing if it might be possible for you – or you’re considering it in retirement – here are a few things to keep in mind that will ensure your financial stability when looking to buy a second home.

Boomer: How do I know if I can afford to become a snowbird?

Vale: This question happens to be near and dear to my heart, as I’m not only a private wealth advisor with a lot of snowbird clients but also a “part time” snowbird myself splitting my time between New York and Delray Beach, Florida.

As I went through the same calculus for myself, I can tell you the only way to know the answer to this question is that you absolutely must consider and add up all your spending habits. You then must recalculate your budget in a way that captures the additional expenses as well as some potential savings.

I would also highly recommend spending some time visiting the actual area you plan on living in during the winter to get a better understanding of how much your lifestyle would change and cost to maintain there. There are many important questions to ask oneself, and I would strongly encourage everyone to engage their financial professional to walk through the various important considerations.

Boomer: What are the residency and tax options advantage or disadvantage to becoming a snowbird? Where should I claim my primary residence and what tax options do I need to know in prioritizing my move?

Vale: Given the sweeping changes in tax law in late 2017 with the Tax Cuts and Jobs Act and the subsequent limitations on state and local tax (SALT) deductions, changing your tax domicile from a high tax state (like Maryland, Illinois, New York, New Jersey and Connecticut) to a lower tax state (like Florida, Tennessee, Colorado, Nevada, Arizona and Texas) may also result in beneficial income, capital gains and estate tax treatment.

However, the advantages, disadvantages and guidelines for electing your tax domicile and claiming primary residence status varies by state and your specific circumstances. This would be an ideal opportunity to bring in your tax advisor (and if applicable, your estate planner/attorney) in order to help you weigh all the pros and cons.

Florida also offers important asset protection benefits (from creditors and lawsuits) for its permanent residents if you qualify to claim your primary residence for your homestead protection.

While there may be some tax advantages that offset some or all the incremental increase in costs, that will vary based on your individual circumstances. The flipside to the potential for tax related savings is that if you do not qualify for being able to change your tax domicile, your taxes may experience a significant increase if you chose to own your summer residence (via the increase in real estate taxes).


Boomer: Should you make an offer on a second home during peak travel season -- or not?

Vale: With the weather being unseasonably cold up north, now may be an ideal time to “investigate” what it’s like to spend time at your preferred winter getaway. Using south Florida as an example, the months of October through April tend to be much busier with other snowbirds flying in for the winter. You will get a much better sense of what navigating the day to day is like (traffic, restaurant reservations, etc.) if you plan your visit during the “peak” months.

Conversely, if you intend to make an offer on a property, the June through August “off peak” months tend to be the slowest in terms of real estate sales activity, so that may be a good time to focus on securing the winter home of your dreams.